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The global stock market delivered poor returns in 2022. US stocks performed particularly poorly. Excluding dividends, the S&P 500 decreased 19.4%, and the Nasdaq 100 It fared worse, plummeting 33%. UK stocks proved to be better investments. He FTSE 100 returned a 0.9% gain, although mid-cap FTSE 250 The index struggled, falling 19.7%.
However, some bear analysts argue that we have not yet seen capitulation, which is often seen as the final stage of bear market pain. British investor Jeremy Grantham has predicted that the S&P 500 could drop 50% in a worst-case scenario.
So how likely is a stock market crash in 2023? Here is my opinion.
the bear case
Rising interest rates, stubborn inflation, and economic slowdowns. It seems that the list of reasons to be bearish is endless.
US investors could target a 10-year price-earnings ratio of 29.3 for the S&P 500, 45% above the index’s modern-era average. Using this benchmark alone, US stocks look expensive despite substantial declines.
Closer to home, the IMF predictions suggest a bleak outlook for UK stocks. While many advanced economies received slight improvements to their growth prospects, Britain languishes at the bottom of the IMF forecast, behind Germany and even sanctions-battered Russia. It is the only G7 nation that could fall into recession this year.
The outlook for European stocks is clouded by the war in Ukraine. In addition, the Spanish inflation data for January were better than expected. Consumer prices advanced 5.8% year-on-year, compared to 5.5% the previous month. This could indicate that the ECB may need to be decidedly hawkish if similar numbers emerge across the eurozone.
the case of the bull
On the other hand, stocks often look to the future. Stock market price can be viewed as the set of investor opinions about how companies will perform in the future. By the time some investors take notice of current economic conditions, Mr. Market already has one eye on the future.
Historically, stock prices have enjoyed a long-term uptrend, as innovation and other drivers of economic growth drive companies’ profitability. Taking an example, the AI revolution is on. The OpenAI tool, ChatGPT, has attracted significant attention.
Indeed, Microsoft recently announced a $10 billion investment in the startup. Who knows what technological developments 2023 might bring, but big breakthroughs could be good news for stocks.
Plus, it’s easy to be overly pessimistic about the future. Inflation rates could cool, economic growth could exceed expectations, and the war in Ukraine could end sooner than expected. Any of these eventualities would be a tailwind for stock market growth.
How am I investing in the stock market this year?
I expect volatility in 2023. Trying to predict a stock market crash is arguably a fool’s game, but it reminds me of the old adage: market time is better than market time.
I will continue to invest in stocks this year, albeit cautiously. By diversifying my holdings across sectors and having enough additional cash on hand to buy big dips, I hope I can ride out severe volatility.
Also, I invest for the long term. I’m more concerned about where stocks will be in 2033 than in 2023, so unless we’re headed into another great depression, I think the long-term outlook remains bright.
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